Dynamically-pricing auctions (often called “English auctions”) are usually conducted with ascending prices, continuing until bidders cease competing over the available supply. These auctions are good choices for some occasions, but can take time, reveal information that a bid-taker may prefer not to disclose, and be more susceptible to collusion by a subset of bidders than alternative auction forms.
Flower and fish auctions in the Netherlands (called “Dutch auctions”) publicly display prices descendingly, and transact more rapidly than any other auction format. As the first bidder to click a “buy” button ends the auction at that price, no information is revealed during the price-descending phase. When rational bidding stems from asymmetric valuations; however, the Dutch auction is predicted to yield inefficient outcomes—awarding the asset to one bidder when another values it more highly—with sometimes unacceptable frequency. In even simple settings, moreover, the rational bid (price level at which to click “buy”) often requires an exceedingly difficult calculation (in particular, relative to the English auction), which might discourage bidder participation.
In many situations seeking to sell or to purchase assets via auction, it would be desirable to approach the speed of a Dutch auction, to sell to the bidder with the highest valuation even in circumstances where valuations are asymmetric, to prevent information revelation during the auction, to encourage bidder participation via simple rational bid functions, and to avoid facilitating collusion.